June 4 (Bloomberg) -- When Thailand’s military coup spurred
foreigners to pull money out of the equity market late last
month, the nation’s top-performing stock investors jumped at the
chance to take the other side of the trade.

BBL Asset Management Co., the manager of Thailand’s best-performing equity fund during the past five years, has been
boosting stock holdings as a bet the junta will accelerate
spending to shore up the economy. The Thai unit of Aberdeen
Asset Management Plc, which runs the nation’s second-best
performing fund, is also buying amid inflows from local clients.

No other stock market in Southeast Asia has rallied more
than Thailand’s since the May 22 coup as local investors piled
into shares at the fastest pace this year last month. While
bears say the military takeover has failed to resolve conflicts
that led to more than six months of political deadlock, Thai
money managers are betting the junta will fast-track measures
needed to bolster an economy that contracted by 0.6 percent in
the first quarter.

“The military government’s plan to restore business
confidence and accelerate spending will revive the economy,”
Voravan Tarapoom, the chief executive officer at BBL Asset,
which oversees about $13 billion, said by phone on June 2. The
firm’s BBL Bualuang Thanakom Open-end Fund has returned an
annualized 29 percent in the past five years, the most among 165
Thai-domiciled stock funds tracked by Bloomberg.

Spending Plans

The SET index yesterday erased its losses since anti-government protests that led to the coup. The Oct. 31
demonstrations marked the start of an escalation in tensions
between opposition politicians and the ruling Pheu Thai party
that eventually led to Prime Minister Yingluck Shinawatra’s
ouster and spurred the army to take over power for the 12th time
since 1932. The measure slipped 0.3 percent by the close today
in Bangkok.

The Thai stock gauge’s 3.5 percent rally from May 22
through yesterday compares with a 0.7 percent drop in the MSCI
Southeast Asia Index. The SET is valued at 17 times reported
earnings, versus 15 times for the regional measure, according to
data compiled by Bloomberg.

The junta plans to speed up infrastructure spending,
including a dual-track train project that was ruled
unconstitutional under Yingluck’s government. The military will
boost investment in projects along the nation’s borders with
Malaysia, Myanmar and Laos, according to Air Chief Marshal
Prajin Juntong, its head of economic affairs.

State Fund

Domestic individual and institutional investors bought
about 34 billion baht ($1 billion) of Thai shares in May, the
most since December, according to exchange data compiled by
Bloomberg.

Violent political demonstrations in Bangkok haven’t been
reported since May 15, when grenade and gunshot attacks killed 3
and injured 22 anti-government protesters, according to the
Bangkok Emergency Medical Service’s website. The military has
banned political gatherings nationwide, deploying troops to
suppress anti-coup demonstrators.

“For Thai investors, they are here and know that the
situation is much calmer, probably calmer than before the
coup,” Adithep Vanabriksha, a Bangkok-based money manager at
Aberdeen Asset, which oversees about $541 billion worldwide,
said by phone. The firm’s Thailand-domiciled Aberdeen Small Cap
Fund has returned an annualized 29 percent in the past five
years. “This boosts their sentiment and confidence in the
economy and stock market.”

Political Conflict

Some local investors are joining foreigners in taking a
bearish stance. The nation’s Government Pension Fund has
underweight holdings in local shares and doesn’t plan to boost
positions until political stability returns and the economy
shows signs of recovery, its secretary general told Bloomberg
News in a May 26 interview.

Foreign investors sold $1.1 billion of Thai shares in May,
including more than $600 million of outflows in the six days
after the coup. ABN Amro Bank NV cut its estimate for Thai
economic growth this year to 2 percent from 3 percent on June 2,
citing the lack of a visible democratic solution to the
political crisis.

“The risk-reward of Thai equities is skewed to the
downside,” Hozefa Topiwalla, an analyst at Morgan Stanley in
Singapore, said in a video on the firm’s website dated June 2.

Baht, Bonds

While shares may get a short-term bounce as the coup
provides stability, it hasn’t solved the nation’s underlying
political conflicts, according to Credit Suisse Group AG’s Dan
Fineman. The analyst wrote in a June 2 report that returns from
stocks may disappoint bulls over the next 12 months.

Thailand’s baht has slipped about 0.8 percent against the
dollar since the coup, while the yield on 10-year government
bonds has increased four basis points to 3.84 percent, according
to data compiled by Bloomberg.

The foreign outflows from Thailand contrast with Vietnam’s
stock market, where overseas investors have been buying shares
amid riots against a Chinese oil rig in disputed waters.
Foreigners have boosted holdings on the Ho Chi Minh City Stock
Exchange for the past eight days, adding more than $34 million.

Sompong Cholkadeedamrongkul, a 61-year-old private investor
in Bangkok, said he bought stocks when they retreated the first
day after the coup was announced.

“The coup just shortens the crisis period,” he said by
phone on June 3. “A number of Thai stocks have strong
fundamentals and outlook, but they were depressed by prolonged
political turmoil and weak sentiment.”

Consumer Confidence

An index of consumer confidence rose to 70.7 in May from
67.8 in April, the first gain in 14 months, according to the
University of the Thai Chamber of Commerce.

Southeast Asia’s second-biggest economy may expand between
2 percent and 2.5 percent this year, led by a recovery in local
consumption and an acceleration of state spending following the
coup, according to a private industry group that includes the
Board of Trade, Federation of Thai Industries and Thai Bankers’
Association.

“The overall outlook for the Thai economy and political
situation is not as bad as what overseas investors see from
outside,” said Aberdeen’s Adithep. “The coup has restored
stability and resolved the policy deadlock in the short term.”